Fed’s Stein: Markets Misinterpreted Bernanke

By Johanna Bennett

Another Fed officials is joining the choir of voices saying the markets misunderstood Chairman Ben Bernanke’s statements last week about winding down the central bank’s $85 billion bond-buying program

According to the WSJ, Fed Governor Jeremy Stein said in a speech Friday that Bernanke’s in no way reflected a shift in the Fed’s plans for raising short-term rates, which have hovered near zero since late 2008. Rather his remarks represented a shift in how far the Fed is willing to go in explaining its goals for the bond-buying program.

At a press conference following the Fed’s June 18-19 policy meeting, Bernanke said that if the economy continues to strengthen as the Fed expects, the central bank would start tapering its monthly bond purchases later this year and could end the program mid next year.

Bernanke said unemployment would be around 7% when the Fed brings the bond-buying program to a close.

Until now, the Fed has been willing to say only that it would continue the program until the jobs market showed “substantial improvement.” But in summing up Stein’s remarks, WSJ reporter Victoria McGrane writes:

When the Fed launched the current round of bond buying in September, “it would have been hard to predict how long it might take to reach any fixed labor market milestone, and hence how large a balance sheet we would have accumulated along the way to that milestone,” Mr. Stein said in remarks prepared for delivery to the Council on Foreign Relations in New York City.

But as the Fed makes more progress toward its economic goals, officials are both more willing and able to provide clarity on what those goals are and “the more information the market demands about the conditions that would lead us to reduce and eventually end our purchases,” he said.

“I view Chairman Bernanke’s remarks at his press conference…as an effort to put more specificity around the heretofore less well-defined notion of ‘substantial progress,’” Mr. Stein said.

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JUNE 28, 2013 10:18 A.M.

John Tamilton wrote:

It seems to me that the economic crisis is going to keep us company for some time yet. I firmly believe that our politicians should address the issues with greater professionality. Perhaps they should engage the services of specialists in the economic crisis, as some counties already do in the US. By engaging the services of the Orlando Bisegna Index, they have resolved deficit problems and reduced unemployment.

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